Ferguson hints at gas hub pause

After years of rapid fire major investment approvals and multibillion-dollar export deals for Australia’s booming liquefied natural gas sector, project promoters are fighting a string of problems as cost spikes, regulatory burdens, renewed environmental opposition and the threat of North America’s shale supplies cast a shadow over the industry.

At Wednesday’s Financial Review National Energy Conference, Resources Minister
Martin Ferguson
was told by a succession of executives at major foreign energy companies including Shell and ConocoPhillips increased costs and more layers of scrutiny were causing headaches particularly for those operating in Queensland’s controversial $70 billion coal seam gas sector.

Projects under construction in Gladstone include the QGC project, owned by the UK’s BG Group, worth $20 billion, Santos’s $16 billion Gladstone LNG development, and the Origin Energy/ConocoPhillips $14 billion Australia Pacific LNG facility. Shell and PetroChina have also laid out plans for a fourth venture in the Queensland port town.

“The government must do everything within its power to . . . be mindful of the implications of introducing policy that might hinder future investment in Australia," Conoco’s Australian president, Todd Creeger, told the conference. “The next wave of Australian LNG projects is going to have to compete with US or North American gas. There’s a lot of gas that has been discovered off east Africa and in Qatar as well."

Shell, one of the largest foreign investors in Australia’s resources industry, also painted a gloomy picture for the LNG industry.

“In Australia we face the challenge of a strong dollar, a high cost environment and low productivity rates," says Shell Australia chairwoman Ann Pickard. “So how are we going to compete against the vast low-cost resources that we see coming out of North America?"

The growing pains of a booming resources industry are hardly new to Ferguson. He has juggled rampant iron ore and coal production in the last few years but admits there is probably only room for one more major LNG hub in Australia given the $175 billion of investment committed.

“My own personal view is that once we determine the future of the [Woodside Petroleum controlled] Browse joint venture I think we should pause with respect to the number of gas hubs we need in Australia," Ferguson told the Financial Review earlier this week. “We would effectively have Onslow, Pluto, North-West Shelf, Darwin, Gladstone and then maybe Browse and I would then as the minister be encouraging consolidation."

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While his powers of persuasion to limit future growth in the LNG sector may well work to dampen cost inflation, in Queensland’s coal seam gas sector the minister faces something of a wildcard: well organised environmental opposition. Earlier this month it emerged a national plan by Greenpeace to derail new coalmines and facilities originally grew out of a campaign against coal seam gas drafted by anti-CSG group Lock the Gate Alliance.

Ferguson says it is important to differentiate between the political motives of green groups and the genuine concerns of farmers and community groups.

“I just take it for granted now that we have the Greens and a group of non-government organisations who are consumed with stifling investment and economic development in Australia," Ferguson says.

“I work on the basis this is not a scientific debate for them. It’s a political debate – for them its about membership and donations. It’s not about resolving problems and as a minister I need to operate on that basis."

He admits CSG producers need to work more carefully on their own engagement with affected communities in the state.

“The industry is not new but it has moved quickly," Ferguson says. “That has meant a huge amount of activity over a very short period which really gave rise to some consequences of a failure to properly engage."

The industry’s mixed footprint among rural communities and the LNP’s new plans for the CSG industry may create more delays for an already stretched industry.

The LNP has proposed making the owners of coal seam gas projects provide “full and fair" compensation for the impact of their wells, including covering any loss of production.

Companies will also have to pay for any legal costs, for the loss of future development opportunities, and time spent dealing with resource companies.

While energy producers involved in Gladstone export facilities point out CSG did not feature as a major issue for voters in last weekend’s Queensland elections, Ferguson treads a cautious path on the issue no doubt mindful he is making his first public comments since the Liberal National Party’s landslide win.

“We cannot deny the importance of proper regulatory arrangements," Ferguson says. “But I also believe that governments at all levels need a renewed focus on environmental regulatory arrangements to ensure we don’t actually stifle investment to the detriment of our natural prosperity."

The federal government has worked to smooth community concerns about the environmental impact of CSG and coal projects through the $150 million plan for an independent scientific panel to examine the impact of developments on water tables.

Energy companies at the conference told the Financial Review they were concerned Canberra’s plan will create an unnecessary layer of regulation in addition to onerous state and federal policies already in place.

But Ferguson says he is confident that states including Queensland will agree to take on the findings of the scientific committee to give a more harmonised approach to the environmental approvals process.

“I hope the new Queensland government continues to support the process in the way that the previous Queensland government did and the NSW government is at the moment," he says. “If anything, what we do creates an independent input into the decision making and again reinforces the integrity of the process."

While Ferguson retains strong support within the LNG sector, one executive at the conference said more needed to be done to provide certainty for long term investment. “We are here on the ground investing huge amounts of money but need to see a little more consistency from the government for the CSG industry."